Homebuyer headwinds in 2024

As the cost of living continues to rise, affecting household incomes and affordability across the UK, the mortgage lending market is predicted to experience a further ‘contraction’ in 2024[1]. This forecast aligns with the challenging financial landscape expected to be ongoing for the mortgage sector in 2024.

RISING REDUCTIONS IMPLEMENTED QUICKLY

Yet, there is a glimmer of hope for homeowners nearing the end of their fixed mortgage deals. Some high street lenders initiated the year by significantly cutting rates, which could therefore result in savings this year for those homeowners. These rate reductions were implemented quickly, within hours of the first working day of 2024.

OPTIMISM AROUND DECREASING INFLATION

Over the past few months, mortgage rates have steadily decreased, fuelled by optimism around decreasing inflation and the anticipated base rate cut by the Bank of England. This widespread expectation of a forthcoming rate cut led to a drop in swap rates, a key indicator banks use to set future base rates and price fixed rate mortgage deals. For the majority of the 1.6 million homeowners whose fixed rate deals are due to end this year, the recent rate reductions will be a welcome relief, but they will still pay more than before.

AFFORDABILITY PRESSURES REACH THEIR PEAK

While the main pressures on affordability have reached their peak, some experts predict these pressures are unlikely to be alleviated soon. Consequently, weak lending is expected to persist through 2024, with a slow improvement in affordability potentially leading to a slight uptick in activity levels by 2025.

HIGHER LIVING AND INTEREST COSTS DETER SOME POTENTIAL HOMEBUYERS

For those considering a move or an entry into the housing market, the increase in living costs and interest rates since the onset of 2022 has significantly heightened the criteria for passing mortgage affordability tests. This resulted in a lending drop for house purchases in 2023 by approximately 23%, down to £130bn.

DAMPENED HOPES FOR 2024 DESPITE EASED COST PRESSURES

Looking ahead to 2024, even with some relief in cost pressures, the prevailing levels of prices and interest rates will continue to impose a heavy burden. UK Finance predicts an 8% decrease in house purchase lending, bringing it down to £120bn.

A BRIGHTER OUTLOOK FOR 2025 AS AFFORDABILITY IMPROVES

However, some experts offer a more optimistic outlook for 2025. By this time, they suggest the amalgamation of wage growth, softer house prices, and a decrease in inflation and interest rates will contribute to a gradual recovery in lending activity as affordability improves.

Don’t forget, our professional friendly advisors are on hand to support you and can help you explore all of your options.

Source: